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How should spousal rights be handled in HECMs that pre-date marriages? Image: Fotolia.
How should spousal rights be handled in HECMs that pre-date marriages? Image: Fotolia.

Here Comes the Non-Borrowing Spouse

OCT 8, 2013 5:27pm ET
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WE’RE HEARING… that although we just got done with a round of Home Equity Conversion Mortgage reform, there is another one coming from a recent decision in a case involving non-borrowing spouses’ rights that should be factored into the investment outlook for reverse mortgages.

“There is no question it will have broad policy implications,” said Atare Agbamu, president/CEO of consultancy ThinkReverse LLC, in response to the judge’s ruling that something needs to be done about rules governing non-borrowing spouses that appear contradictory.

An order from the United States District Court for the District of Columbia remands the case to HUD “for further proceeding consistent with the opinion of this court.”

HUD has a policy of not commenting on litigation so it’s uncertain what its response will be, but it is essentially being asked to resolve the conflicting rules regarding non-borrowing spouses’ rights.

Roughly and briefly put, the key conflict has been between rules that suggest a non-borrowing spouse has to pay in full the loan when the borrowing spouse passes on or potentially face foreclosure, and rules designed as a “Safeguard to Prevent Displacement of the Borrower” that state “…for purposes of this subsection, the term ‘homeowner’ includes the spouse of a homeowner.”

Lenders have been known to make HECM loans in the past to just one spouse because making the loan to whoever had the more “favorable” (older) age would get more better loan terms.

Agbamu, who has long pressed for a resolution to this rule conflict and suggested some ways it could be handled, said one option would be “for HUD to make a broad policy that says that whenever there is a spouse, the age of the younger spouse will be used [to make the loan] and no one can be removed from title.”

There will be questions to work out. The National Reverse Mortgage Lenders Association, for example, has raised some industry concerns, among these the question of HECMs made before borrowers marry or remarry, adding spouses who the original underwriting of the loan did not account for.

However HUD addresses the apparent conflict, it seems like it would have been more efficient to take care of this along with the broader wave of HECM reform seen recently. But perhaps the litigation made this problematic. Regardless, Agbamu thinks the sequence of events could help expedite what he hopes will be some kind of satisfactory resolution to the issue going forward. Now that they have broad powers, HUD officials may be in a better position to implement the kind of further reforms needed to do this, he said.

Bonnie Sinnock is managing editor of National Mortgage News and editor of Origination News. She has been covering the mortgage industry since 1995.

Comments (4)
More better??? Editor??? Where are you??
Posted by Susan d | Wednesday, October 09 2013 at 8:36AM ET
This needs to be addressed quickly or it may mean the end of reverse mortgages. Loan losses from existing non-borrowing spouse loans may be enough to sink the program.
Posted by Lance J | Wednesday, October 09 2013 at 10:10AM ET
I do not mean to be insensitive to non-borrowing spouses who are not on deed. However, just as in the case where conventional mortgages have been used to finance properties where only one spouse is on deed and on mortgage, there was a reason for doing so. I'm sure that there were lengthy informed discussions among the borrowers, family members and their advisers before moving forward with these decisions. Why is it that when the inevitable happens( the death of the older spouse) everyone wants to cry foul and blame the product (reverse mortgage) used? This is my 5th decade in the financial services industry. Experience tells me that 90+% of these people knew exactly what they were doing at the time. One person's opinion....
Posted by BURGESS K | Wednesday, October 09 2013 at 10:14AM ET
About that 90%. If officials at HUD had gone to Congress years ago to get clarification regarding the statute where it says that the homeowner and the spouse of the homeowner cannot be displaced, none of this would be happening now. HUD violated the statute. Period. And it was not the only violation. Recall that 2008 HUD letter, that pretended that Reverse Mortgages were suddenly no longer non-recourse loans, and going forward the entire amount of the loan including interest was owed. That was not in accordance with the statute either. Thanks to
AARP that was smackedmdown. HUD has administered the statute in an arbitrary
and capricious manner. And now they need to make ammends. It remains to be
seen if they are willing or even can make ammends in some cases. One wonders how many seniors who were displaced from thier homes without remedy from HUD
have died. Given the way HUD has acted in the past, I have to be skeptical.
Posted by | Saturday, November 23 2013 at 11:16PM ET
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